A complex structure that involves various layers will have more compliance issues attached to it, than a simpler structure.
For example, a structure consisting of a company and a unit trust with two discretionary trusts as unit holders may provide the ideal structure for a smaller business that will also make some investments. However, such a structure requires that four entities be accounted for in addition to the business owner’s individual returns. In addition, trading between the structures will add an extra layer of complexity.
By contrast, if your business is held in a single unit trust and you are the sole beneficiary, it will be far simpler to manage. However, you may not experience the same benefits when it comes to tax minimisation and asset protection.
Where does this leave you when choosing a structure? Do you just leave it to your accountant? Do you just pick whatever sounds like the right thing?
Unfortunately, there is no one-structure-fits-all-scenario. Therefore, your particular circumstances need to be taken into account.
Trading businesses generating income are best kept simple. I am an advocate for the KISS (Keep It Simple Stupid) philosophy where possible. This is where it comes to the fore. As a general rule, the smaller the business the more likely a sole trader or partnership structure may be the best option. The larger the business (and depending on access to family members who can be beneficiaries), the more likely a company or trust structure would best suit.
The complexity tends to become a reality when there are business partners and there is an investment or asset holding in addition to the trading entity.
If you own an asset or plan to purchase an asset in connection with your business, you would be best advised to hold that asset in a separate entity, whether or not you have partners. Without partners, a simple discretionary trust may suit your requirements so you can access CGT concessions. With partners, an additional entity, such as a unit trust, may best suit your requirements, with each partner owning their share of units in their own discretionary trust.
Finally, keep in mind that simple or straightforward structures will enable easier access to borrowing from financial institutions. Banks have a tendency to shy away from structures that they do not fully understand. That is not to say that it is not possible with a more complex structure, however, it is something that you need to be consider before finalising your structure.
If you would like some assistance with understanding what is the best structure for you and your particular circumstances, Please get in touch for a complimentary discussion.
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Tony has 33 years’ experience as an accountant, and 13 years’ experience as a CPA. His first 18 years’ experience involved financial, management and operational accounting roles at a senior management level, in the security, transport, and forensic accounting industries